London shares fall as investors eye China losses

Oil shares lose ground; FTSE closes in the red, but off earlier lows

SarahTurner

LONDON (MarketWatch) -- Shares in London's top index weakened on Wednesday, with miners downbeat as investors weighed overnight losses in the Chinese stock market and oil stocks came under pressure.

China's Shanghai Composite Index tumbled as much as 7.4% Wednesday after the government unexpectedly tripled duties charged on stock trades, the latest in a series of official steps taken to cool speculative activity and head off what many believe is a runaway equity-market bubble. See Asia Markets.

"Heavy losses in China overnight, after its government tripled stamp duty on share trading, have fed into European markets," noted Victoria Savage, a trader at CMC Markets.

China is one of the biggest export markets for the mining sector and shares in Anglo American (AAL) lost 0.9% and Vedanta Resources (VED) shares slipped 0.5%, weighing on the FTSE 100 index (UKX), which closed down 0.1%, or 4.40 points, at 6602.10, off earlier losses. Other European shares also ended off intra-session lows, as investors took comfort from the fact that Wall Street didn't follow the Chinese sell-off. See Europe Markets.

BP also said that the head of its refining and marketing business, John Manzoni, is leaving the firm after 24 years, a move that comes months after damning reports on the company's safety at its refineries. See full story.

Earlier in the session shares of drugmaker GlaxoSmithKline
GSK, -1.05%
(GSK) weighed on the index, hitting a two-year low of 1,269 pence after Merrill Lynch downgraded the stock to sell from neutral, citing the firm's unattractive risk-reward profile.

The broker told clients that while it agrees safety concerns over diabetes drug Avandia in the wake of an article recently published in the New England Journal of Medicine are "scientifically questionable," it expects the resulting publicity to further negatively impact Avandia sales and the GlaxoSmithKline share price.

The shares recovered to close up 1.7% after the company said in a letter to U.K. Journal the Lancet that reported estimates of heart risks associated with its Avandia diabetes drug were "not robust."

The shares lost about 2% on Tuesday when Deutsche Bank said that daily prescription data suggested Avandia has lost market share in the newly prescribed oral anti-diabetic market.

Resolution signs Capita deal

Shares in life insurance group Resolution (RSL) led top index decliners down 2.8%, as its shares started to trade without rights to the latest dividend payout.

Resolution also announced that outsourcing group Capita Group (CPI) has agreed to a 12-year, 580 million pound ($1.15 billion) deal to provide customer services, IT services, policy servicing, claims and new business processing. Capita shares gained 1.3%.

Rounding out top index action, London-listed Chilean copper miner Antofagasta (ANTO) said its first-quarter operating profit rose 20% to $625 million, with revenue up 11% to $830 million. The company said it benefited from improving copper and molybdenum prices. Production declined to 105,900 metric tons from 107,000, on an expected decrease in ore grades at its Los Pelambres mine. Shares inched 0.8% higher.

Kensington gets buyout offer

Outside the top index, shares in subprime mortgage provider Kensington Group (KGN) dipped 1.6%, pulling back from earlier gains. Anglo-South African broker Investec (INVP) agreed to buy the firm for $561 million (283 million pounds), taking advantage of the funding woes the British subprime lender has faced since trouble emerged for its peers across the Atlantic. See full story.

Shares in technology group LogicaCMG (LOG) gained 3.9% after a report in the Times (of London) newspaper that private-equity group Permira is investigating the possibility of launching a takeover bid for the company.

On the earnings front, nuclear power generator British Energy (BGY) reported that its net profit for the year ending March 31 rose 8.1% to 465 million pounds ($922 million) on higher selling prices for its electricity. Revenue rose 15.7% to 3 billion pounds.

Shares lost 5.7% after investors also took into account news that the Nuclear Liability Fund intends to reduce its stake in the company to 39%.

And shares in media firm GCap Media (GCAP) slumped 13.9%. Its fiscal-year adjusted pretax profit dropped to 4.1 million pounds, from 20.1 million pounds a year ago, after the company invested in its key radio stations.

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